Tag: politics

Stumbing into recession

An obsession with surpluses and satisfying the ratings agencies is going to have harsh consequences for Australians

The Committee for Economic Development Australia (CEDA) today released its 2012 Big Issues survey looking at the responses of 7000 business people on the issues confronting Australian industry in 2012.

One of the notable results is that business people don’t care about government surpluses. A third are neutral on the question “do you believe maintaining a government surplus is important” while 35% disagree that it is a high priority.

Q10

Yet despite the electorate and business saying the deficit is not a priority, the politicians still obsess about maintaining their surplus.

Now Australia’s mining boom has come to an end – along with the blue sky economic assumptions that underlie both sides of politics’ spending plans – governments are desperately trying to fudge the books and continue the pretense that their budgets are in the black.

Driving this obsession with avoiding deficits is the religious belief among Australia’s political classes that Triple – A credit ratings from the discredited Wall Street ratings agencies is more important than educating the nation’s children, caring for the country’s sick or building the infrastructure to compete in the 21st Century.

The real danger with this deficit obsession is that there is a very high possibility that state and Federal governments are going to tip Australia into a recession driven by European style austerity. Already we see this developing as various states start slipping backwards according to the ABS’ latest accounts.

graph courtesy of Macrobusiness

Another interesting result from the CEDA report is how business’ view the Australia in the Asian Century report with nearly 80% of respondents saying the issue is important or critical.

It is questionable whether Australian business is prepared to face the realities of an Asian Century as David Llewellyn-Smith writes at the Macro Business Blog, Australia’s businesses are looking more at getting help from the government to cut domestic costs rather than sell into Asia. That inward focus of Australian business since the mid-1990s is the topic for another blog post.

The sad thing is that the government aspects of Asian Century report is stillborn as surplus obsessed politicians carve into skills training and innovation programs in a vain attempt to balance the books while failing to reform the tax system or address the middle class welfare that’s squandered most of the returns from the last decade of prosperity.

Australia’s politicians are very soon going to have to decide who they govern on behalf of, the corrupt and incomptent ratings agencies or the people who vote for them and pay the taxes which support them and their political parties. For some, this might be a tough choice.

Australia in the Asian Century – Chapter Five: A productive and resilient Australian economy

Is Australia’s economy as strong as we think in the Asian Century?

This post is one of the series of articles on the Australia in the Asian Century report.

Chapter five of Australia in the Asian Century looks at the domestic settings the nation needs to achieve the “2025 apirations” described in Chapter Four.

To do this lays out a number of national objectives to achieve Australia’s 2025 Aspirations which are at least ambitious. These include education, innovation, infrastructure, communications and tax.

Education

National objective 1: All Australians will have the opportunity to acquire the skills and education they need to participate fully in a strong economy and a fairer society.

Probably the most worthy of the report’s objectives is to improve the nation’s already good level of education. Unfortunately the detail in the report is lacking beyond rehashing existing programs.

These programs do cover important initiatives such as improving literacy rates amongst the disadvantaged which is essential if Australia is going to address its poor participation rates which are going to be one of the major domestic challenges for the country in the 21st Century.

At the other end of education though there is little more than empty words as the discussion of workforce training is rendered hollow by the decision to further cut back apprenticeship training and universities find their funding continually reduced making it less likely they can get into the world’s top rankings.

Most importantly, there is little space given to addressing Australia’s poor performance in the STEM – Science, Technology, Engineering and Mathematics – subjects.

Innovation

National objective 2: Australia will have an innovation system, in the top 10 globally, that supports excellence and dynamism in business with a creative problem-solving culture that enhances our evolving areas of strength and attracts top researchers, companies and global partnerships.

More fine words but this commitment to ‘innovation’ is again hollow when the Federal government cuts commercialisation incentives and export program.

Any talk of encouraging innovation is pointless anyway without reforming the nation’s tax system which currently favours asset speculation over building productive businesses and products – we’ll come to the tax impasse later.

Infrastructure

National objective 3. Australia will implement a systematic national framework for developing, financing and maintaining nationally significant infrastructure that will assist governments and the private sector to plan and prioritise infrastructure needs at least 20 years ahead.

This section is a sour sick joke which illustrates all that is wrong with Australian governments at all levels. Infrastructure planning for the next 20 years should largely be in place now and the fact it seen as being a national objective by the authors of this report

At best this section of the report reads like an ode to the corporatist ideologies of the 1980s and in fact illustrates exactly where Australia lost its way in the 1990s as the country’s business leaders realised that Asia was too hard when there were easy pickings in convincing gullible Liberal and Labor governments into selling assets cheaply and exploiting the resultant monopolies.

Communications infrastructure

National objective 4. Australia’s communications infrastructure and markets will be world leading and support the rapid exchange and spread of ideas and commerce in the Asian region.

This is a fine objective and may be achievable if the National Broadband Network is rolled out on time and isn’t affected by poor management decisions or gutted in an act of political bastardry by a future Liberal government.

Hopefully this is one are where actions will meet the the report’s words.

Taxation

National objective 5. Australia’s tax and transfer system will be efficient and fair, encouraging continued investment in the capital base and greater participation in the workforce, while delivering sustainable revenues to support economic growth by meeting public and social needs.

In 2007 the then Labor Prime Minister Kevin Rudd appointed Ken Henry to review the Australian tax system. That report was comprehensively ignored and the effects of the political bumbling around that lead to Rudd’s axing as Prime Minister and Gillard’s incompetent half-baked Mining Tax.

To have an efficient and fair tax system which encourages investors and workers should be a given. That it has to be spelt out, and then ignored, probably illustrates the greatest failure of Australia’s political and business leaders.

Australia’s current tax system is probably the economy’s greatest weakness as much of the resilience boasted of in the report is based around stimulating the housing market, the wealth effect in turn is reflected in the country’s affluence measures.

Reforming the Australian tax system to favour workers and investors over property speculators is going to require great strength by the politicians who attempt to do it and they’ll need the reform of business leaders and the financial media. None of these three groups have the courage or integrity to be trusted to carry this out in the next 15 years.

Reforming regulation

National objective 6. Australia will be among the most efficiently regulated places in the world, in the top five globally, reducing business costs by billions of dollars a year.

Possibly the greatest hubris in today’s Australia is about the efficiency of the nation’s regulators. In reality Australia is a country that’s quick to legislate but slow to regulate.

We’re very good at passing laws and regulations, not to mention building bureaucracies of thousands of memo writers to oversee these rules, but we aren’t very good at actually enforcing them.

Real reform in regulation is essential to a resilient Australian economy, but like taxation reform this is a complex and thankless task for any politician who attempts it.

Sustainability

National objective 7. The Australian economy and our environmental assets will be managed sustainably to ensure the wellbeing of future generations of Australians.

A worthy objective – unfortunately the ideological war that saving the Murray-Darling has become, the bitter argument over the carbon tax and Australia’s rejection of clean tech entrepreneurs makes one wonder exactly where the country can have a competitive advantage in this area.

One rare note of warning with this report identifies sustainability issues as affecting Australia’s ability to supply food to the growing Asian economies. This is a fair warning but its unlikely opportunistic politicians at all levels care too much to distract them from politicising discussion on the sustainability of various Australian communities and industries.

Sound economic policies

National objective 8. Australia’s macroeconomic and financial frameworks will remain among the world’s best through this period of change.

Approaching this section fills one with dread at the prospect with being served up with more hubris wrapped around Australian exceptionalism.

While the section doesn’t disappoint in this aspect, the writers have identified serious weaknesses in the funding structures and regulation in the capital markets. This probably reflects Ken Henry’s background in the Treasury.

The not unexpected emphasis on AAA credit ratings and the size of the Australian superannuation industry make one wonder why we bother with restrictive economic policies when we clearly have the capacity to fund productive national investment.

All the criticisms of the earlier parts of this chapter flow from this bizarre form of Australian Austerity that has crippled investment in education and infrastructure over the last thirty years and ditching that mentality could be the greatest reform of all.

Every objective objective in the chapter is worthy and true, but state and Federal government actions are acting directly in the opposite direction to the stated intentions of the chapter. The introduction says;

We have made substantial reforms and investments across the five pillars of productivity—skills and education, innovation, infrastructure, tax reform and regulatory reform—and these efforts will continue.

This is not true – in almost every single one of these areas, Australia has been at best treading water. Just in the weeks before this report was released the Federal government’s mini-budget further cut innovation incentives.

The New South Wales government announced in the week the report was released that it would de-skill the state’s workforce even further by following the TAFE “reforms” introduced by Victoria and Queensland which have seen industry training reduced to churing out pointless barista and nail grooming certificates.

At the same time, the regulation “reforms” introduced by successive Liberal and Labor governments at state and Federal levels have followed the 1980s ideologies of gifting assets to ticket clipping managerial and banking classes. Nowhere is this more apparent in the debacle of Australia’s soaring power bills which are becoming a real competitive disadvantage to the nation.

Infrastructure is probably the biggest failure of successive governments, the same corporatist ideologies of the Liberal and Labor Parties of the last 30 years have prevented the construction of infrastructure beyond toll roads which favour the same ticket clipping bankers.

Much of Australia’s core transport infrastructure such as power companies, railways and ports have been sold off to the ticket clippers who have in turn “sweated” these assets by charging monopoly prices while spending the bare minimum to keep them running.

At present Australia has a resilient and productive economy, as did Ireland and Spain before the economic winds turned against them. It’s hard not to think that if a similar report had been written in Madrid or Dublin five years ago the same chapter would have read much the same as Australia’s today.

The big challenge will come for Australia when China, India, South Korea or Japan hit a tough spot.

Even with the rose glass projections of the previous three chapters of Australia in the Asian Century, it’s at least reassuring there are a few notes of warning in this section of the report.

Australia in the Asian Century – Chapter Two: The future of Asia

Chapter two of Australia in the Asian Century attempts to predict the development of the region’s economies over the next decade

This post is one of the series of articles on the Australia in the Asian Century report. An initial overview of the report is at Australian Hubris in the Asian Century.

“Asia’s economic resurgence is set to continue” is the bold statement at the beginning of Chapter Two of the Australia in the Asian Century report and with that the chapter immediately falls back to warm motherhood statements;

Average living standards are set to improve dramatically and transform the way people live and work. Asia’s economies are projected to expand at a strong rate. The region’s expansion and development will change the contours of Asia and the globe—opening up exciting new opportunities, while also posing some challenges.

All of this is true, however the report struggles to identify exactly what those challenges and opportunities are as Asia develops and where Australians fit into the region’s evolving economy.

Demographics will matter, but they are not destiny

The constant mantra through the report is “demographics will matter, but they are not destiny.” Yet, despite the headline, Chapter Two illustrates that so far it has been destiny.

Graph 2.6 of the report shows how Japan’s, and now South Korea’s, productivity has tailed off as the population has aged. This is to be expected when economic expansion has been based on labour intensive manufacturing, as China’s is today.

Frustratingly, the report acknowledges this with the following paragraph;

But the fruits of adopting new technology and adapting it will become harder to harvest. A point will come, though it’s still some way off, where the growth of labour productivity in developing Asian economies will slow—opportunities for gains from importing foreign technology and for shifting workers from agriculture to industry will diminish.

“Some point in the future” doesn’t wash when the rest of the chapter shows off various ‘firm’ numbers estimating ‘base’, ‘low’ and ‘high’ growth rates. If you can quantify those growth assumptions, then it should be fairly trivial to estimate the turning point where aging populations start to affect China.

Luckily others have done this work, the Australian Macrobusiness site suggests that turning point could be as early as 2015. In which case, unlike Japan and South Korea, China will have got old before it got rich.

If this true, then IMF’s projected growth rates will miss their targets – particularly the ‘low growth’ scenario which is almost identical to their ‘base scenario’.

Rise of the middle class

Much of the emphasis in this view of Asia’s development is on the rise of the middle class and the report features a case study of Hitesh, a middle class stockbroker in Ahmedabad.

While there’s no doubt Hitesh and his family’s income and standard of living are rising, the idea that several hundred million Indian and Chinese will jump to European or North American income levels before 2025 is improbable.

Most stockbrokers in New York, London or Sydney earn between 30 and 300 times Hitesh’s $5,000 a year and in 2010, average Chinese income was a tenth of the US.

Even if the Indian and Chinese middle classes did manage a tenfold growth in income over the next decade, the assumption they would adopt the debt driven high consumption patterns of the US or Australia isn’t a given as we see in how the Japanese middle classes haven’t aped the spending behaviour of their profligate Western friends.

The credit and banking points in this chapter illustrate the hubris mentioned in my original overview of Australia in the Asian Century.

And with financial systems in advanced economies unwinding the high debt levels built up before the Global Financial Crisis, financial institutions in stronger economic positions, such as those in Australia and elsewhere in the Asian region, will have opportunities to expand into new markets.

Given the dire records of Australian banks in expanding overseas along with the “stronger economic position” being due more to government guarantees during the GFC and the desperate political desire to prop up Australia’s property market at all costs, it’s difficult to see exactly what Australian institutions have to offer Asian savers except to further underwrite the never ending down under housing bubble.

Chapter two of the Australia in the Asian Century report finishes with an overview of the current geopolitical situation which is notable more for what has been left out. This is again probably due to Canberra public service politics and the report suffers for it.

One major region left out is Central Asia and Russia – outstanding given the report’s view  that a resource poor Asia (that Japanese assumption again) will need Australia to fuel its energy and resources needs – which ignores the construction of pipelines and railways to China and India.

Also missed are the projects to upgrade China’s railway and road links to Europe and Central Asia. These in themselves may trigger major geopolitical changes over the next few years, as we’re seeing today in Tibet and Xinjiang after railways were built to Kashgar to Lhasa. Yet none of this is considered.

Not the ‘Stans should feel aggrieved, like the rest of the report the emphasis is on China and India with scant mention of other Asian countries.

For Australia, much of the hope in the report seems to be in providing raw materials for Asia’s industrialising and urbanising societies along with being a holiday destination and education provider. This is all lazy 1980s thinking which projects Australia’s Japanese experience of thirty years ago onto China and India today.

The predictions of Asia’s future in the Australia in the Asian Century report are largely are a continuation of the status quo. If this report had been written in 1960, it may have picked the rise of Japan over the following twenty years but the main focus would have been on Burma as Asia’s richest independent country.

Exacerbating the report’s weakness are the assumptions that development paths will follow the same course as Japan, Taiwan or South Korea in the late 20th Century.

Development wasn’t a smooth path in all three of those countries and each had their own unique political and economic upheavals in that time, the failure to recognise that similar disruptions will happen in Asia’s emerging economies as they develop is probably the greatest weakness in the entire report.

It’s very easy to draw straight lines on graphs based on ‘best case’ IMF projections but history is rarely linear. This is probably the greatest intellectual failing of the white paper.

Australia in the Asian Century – Chapter One: The rise of Asia

Chapter one of Australia in the Asian Century looks at how the region’s economies developed

This post is one of the series of articles on the Australia in the Asian Century report. An initial overview of the report is at Australian Hubris in the Asian Century.

“Just over two decades ago, the Australian Government commissioned a study of Australia and the Northeast Asian ascendancy” starts the opening of the Australia in the Asian Century report. That sentence describes how this paper is the latest of Australia’s earnest efforts to understand the region.

The opening chapter of the report follows the sensible principle that to plan for the future we have to first understand the present so this section seeks to explain the development of various Asian economies and put those changes into an Australian perspective.

Notable in the narrative is the North East Asian focus, while India gets a brief mention most of the story revolves around the development of China, Hong Kong, Japan and South Korea. Chart 1.2, “Asia’s economic dividend” gives the game away when all but one ‘Asian’ country listed is East Asian.

Russia, along with most of South and Central Asia – not to mention other Asia countries like Iran, Turkey and the former Soviet Republics – rate no mention all.

The narratives around the countries which are covered is also deficient – for instance the discussion on Japan’s, South Korea’s and Vietnam’s developments totally ignore post-war reconstruction efforts and their relations with the United States.

China does get a more detailed examination rightly noting it was the country’s admission to the World Trade Organisation in 2001 that really set the economy’s export sector moving, however it skates over the massive dislocations and market reforms introduced in the 1980s which laid the foundations for China’s successful bid to join the WTO.

More notably, the analysis overlooks – probably to avoid upsetting PRC diplomats and making life difficult in Canberra – the role of Taiwanese investment in China and Taiwan’s development itself.

In a similar vein the scant discussion of India misses the role of Non-Resident Indians (NRIs) in the country’s economic development along with the concentration of power in the various industrial conglomerates like the Tata Group.

Again, the same omission is made when discussing the South Korean Chaebols and Japanese Keiretsu. Given the investments made in Australia by all of these industrial conglomerates it’s curious they barely rate a mention in discussing Asia’s industrialisation process.

The discussion on innovation in Chapter 1.3 is useful however it lacks substance in identifying exactly which sectors various Asian economies are specialising in and which industries are in decline as various countries move up the value chain.

Singapore’s success in becoming East Asia’s hub for banking and corporate regional headquarters is a notable omission and again one has a suspicion this is because of ongoing Australian governments’ doomed ambitions to establish Sydney as a regional financial and business centre.

Probably the most glaring omission in Chapter One though is the role of the United States. In tracking the rise of the Indian service sector or Chinese, Japanese and South Korean manufacturing the trade policies of the US cannot be ignored. And yet they largely are.

That failure to acknowledge the US role means report overlooks the Clinton and Bush I Administrations’ forced opening East Asia’s largely closed economies which radically changed South Korea, Taiwan and Japan in the late 1980s and early 90s. Not to mention the critical role the US had during that period in allowing China and Vietnam to join the global trade networks.

Chapter One of Australia in the Asian Century is an unsatisfactory introduction to the complexities of the Asian economies and one suspects is because of the compromises made to assuage the egos and groupthink of Canberra’s mandarins and politicians.

Most importantly, it fails to put the last thirty years’ developments in Asia into an Australian context or perspective. In this respect, it’s a fitting start to a largely inadequate report.

Guarding your words

Mitt Romney and Alan Jones show how smartphones are changing politics and business

US presidential candidate Mitt Romney and Australian radio commentator Alan Jones have in one thing in common – not understanding that almost every person they know is carrying a listening device.

The smartphone is a powerful tool and one of its great features is how it makes a great dictation device, you can use the built in recording applications to jot down ideas or make a record of important conversations.

Political events are a great opportunity to record the candidates’ or speakers’ talks and this is what has caught both Jones and Romney.

The 47% dependent on welfare slur has probably sunk Romney’s presidential campaign. At the very least it’s exposed the contradictions at the heart of the Republican agenda as they try to demonise those receiving government entitlements while trying to win the votes of older Americans who rely on state subsidies to survive.

In many ways the US Republicans are facing the problem of electorates that believe their entitlements are sacred that all Western politicians will be grappling with over the next quarter century.

This contradiction isn’t something either the media or the Western political classes have the intellectual capacity to deal with, so there is little chance of a rational debate on the economic sustainability of the entitlement culture.

For Romney, this contradiction now threatens to sink his campaign.

The Jones problem is somewhat different, this nasty little man was speaking to the next generation of Australian Liberal Party apparatchiks and the controversy about his tasteless comments will probably improve his standing in the sewer in which he floats. In the wider community outside Jones’ increasingly narrow circle of influence his comments only confirm the low opinion decent people have of this man.

Jones though is not naive when using the media, the real naivety is among his guests. It’s been reported that before the event the audience were asked “if there were any journalists present”.

That question being asked betrays any claim that the organisers didn’t know Jones’ comments would be offensive. It also shows how the modern political fixer misunderstands the nature of today’s media. It’s likely a recording of proceedings would have leaked out through an enthusiastic supporter showing off.

What’s really instructive is how the kindergarten apparatchiks of the Young Liberals believe that shutting down recording devices will remove the risk of being held accountable. That mentality is pervasive through government and politics – shut down discussion and lie about what happened.

All of these politicians have to understand something Alan Jones has known all along; that a microphone should be treated like a loaded weapon and never assumed to be turned off and safe.

The days of what was said to the Poughkeepsie Chamber of Commerce or the Cootamundra Country Womens Association not being reported outside the local community are long gone. If you don’t want something broadcast nationally, then don’t say it.

On balance, this is good for democracy and leadership as it makes all politicians – and business leaders – far more accountable and transparent.

Accountability and transparency are anathema to the apparatchiks who run the political parties of the Western world. These people, despite their access to power, are ultimately going to be found wanting in a world where there is a recording device in almost every person’s pocket.

There are genuine privacy concerns with smartphones but for business and political leaders the days of “speaking with a forked tongue” are over. This is not a bad thing.

Risk free fallacies

Can we really build a risk free world?

One of the conceits of the late Twentieth Century was that we can engineer risk out of our lives.

Derivatives like Collateral Debt Obligations were thought to overcome financial risks, think contracts would eliminate business risks and wise central banks would massage the economic cycle to banish the risks of economic crises.

In schoolyards, the kids are banned from doing cartwheels and playing ball games – in response to a recent edict prohibiting physical activity at a local school an education department spokesman said the ban was to prevent, and not in response to, playground injuries.

So nothing’s happened to provoke a ban, just someone decided there was risk and the first reaction is to eliminate it rather than manage it.

In a litigious society where a culture of blame has developed this reaction is understandable. If a kid gets hurt in the playground then the parents might blame the teacher and one should be under no illusion that in the NSW state education system, the industrial concerns of teachers will always trump the welfare of students.

So the cartwheels must stop.

The strange thing with our culture of blame is that when something goes seriously wrong, such as the implosion of the banking system due to greed and misunderstanding of risk, no-one is held responsible.

For lawyers, this culture is understandable. After all, their job is to warn clients of legal risks and it’s true that every time we walk down the street or jump in our car we might make a mistake that could see us in court.

But we learn to manage that risk and we accept the odds every time we choose to drive down to the supermarket.

The danger in believing we can eliminate risk is that removing one element of risk often results in unexpected consequences – they are even more unexpected when you don’t understand the risks in the first place. CDOs and the shadow banking system are a good example of this.

Government seek to pass laws eliminating risks and in doing so create new risks, particularly when the Acts they pass are poorly written and badly thought out.

There is always the question of what risk we are addressing – in the modern corporatist political system, the PR risk to a government always takes priority over a real risk to citizens. Passing a law to protect the minister’s backside might make life more risky for others.

As helicopter parents, always hovering over our children and blaming teachers, schools, neighbours and other parents when something goes wrong, we’re creating a whole set of risks we don’t understand.

For politicians, managers and leaders their main responsibility is to manage risk, not pretend it’s been eliminated by the latest memo, law or silly schoolyard ban.

Is Australia’s blue sky future making way for a red sunset?

Australia’s political and business leaders are not prepared for Chinese risks to the nation’s economy

Australia’s political and business leaders are convinced the nation will ride on the back of a fast growing China for the foreseeable future.

Having climbed off the sheep’s back during the 1980s and moved from being an economy dependent on agricultural exports to a ‘clever country’ exporting high value services and products, in the late 1990s Australia turned its back on building a modern economy and decided to stake the future on a never ending coal and iron ore boom driven by Chinese industrialisation.

Smarter than Bill Gates

Australia’s success in riding China’s coattails allowed the Reserve Bank Governor Glenn Stevens in 2010 to boast how he and the nation’s politicians were smarter than Bill Gates who nine years earlier warned Australia about being over reliant on commodities.

Despite the hubris, there are real risks in the Chinese economy that the blue sky mining school of Australian economic management needs to plan for.

China warnings

The warning to US Presidential candidates on trade with China by Professor Patrick Chovanec of Beijing’s Tsinghua University’s School of Economics and Management is a good starting point.

In his warning Professor Chovanec points out that Chinese growth in recent years has been driven by the construction sector, even if building activity were to stay constant this would shave off half of China’s growth rate. The options for stimulating the economy in manner similar to 2008 have narrowed.

China’s economy is not just slowing, it is entering a serious correction.  The investment bubble that has been driving Chinese growth has popped, and there are no quick “stimulus” fixes left.  There is the very real possibility of some form of financial crisis in China before year’s end.

China’s stimulus package was the world’s biggest response to the 2008 Global Financial Crisis, followed by the South Koreans (another Australian commodities customers) and Australia itself.

While the Chinese commodities boom drove most of Australia’s trade, it was domestic spending driven by the Rudd government’s stimulus package that saved Australia from entering recession.

Squandering a century’s boom

One of the notable things about Australia’s commodity success in the 2000s is just how little a dent the booming coal and iron ore exports put in the trade deficit. Despite record terms of trade, Australians still manage to spend as much on imports as they make on exported goods.

Not that this worries Australia’s leaders who seem to spend all of their time worrying about pandering to a tiny number of marginal seat voters who listen to fear mongering talkback radio hosts which is what has driven the last two weeks’ obsession with a few hundred asylum seekers.

Professor Chovanec points out the Chinese leadership is distracted as well with their struggles over a messy change of Politburo leadership, risking that the policy makers might miss any opportunity they have to engineer a ‘soft’ landing for their economy.

The biggest risk is that of a crisis engineered to distract a discontented population warns Chovanec;

in a worst case scenario, China may be tempted to provoke a conflict in the South China Sea to redirect popular discontent onto an external enemy.

Already such things are happening, as anti-Japanese demonstrations step up around China over an island dispute.

There are no shortage of island disputes in the South China Sea and almost all scenarios involve allies of the United States – the only one feasible dispute that doesn’t is Vietnam and China’s leadership has had their nose blooded in such disputes with their southern neighbour before.

Even if we don’t see military tensions between the US and China, we certainly are going to see trade and political disputes in the next few years as both countries adapt to their places in a changed world.

For Australia’s business and political leaders, it means being prepared for a world more complex than one where a country can get by just lazily skimming a few dollars of easy iron ore exports to China.

We have to hope Australia’s leaders are capable of dealing with the challenges of a much more dynamic and difficult world where huge growth of one friendly trading partner is not assured. The stakes are too high to be distracted by suburban apparatchiks scoring meaningless political points off each other.

Is Small Business Whingeing its way to irrelevance

Are small businesses worrying about the wrong issues?

“Is small business whingeing its way to irrelevance?” first appeared in Smart Company on August 16, 2012.

Last week, TripAdvisor announced the results of a worldwide hospitality survey. One of the things that leapt out of the survey was how large hotel chains are using social media while smaller Australian establishments are languishing.

Following on TripAdvisor’s survey was the release of accounting software company MYOB’s regular index that showed businesses are retreating from the online world with reduced usage rates of social media, eCommerce and online payments.

At an Australian Israel Chamber of Commerce lunch in Sydney on Tuesday, MYOB’s CEO Tim Reed and Google Australia’s Tim Leeder discussed small business and the web with their Getting Australian Business Online program missing its target of 50,000 sign ups since its launch in March last year.

The fact more than half of Australian businesses don’t have a website despite free services from Google, WordPress, Weebly and a host of others indicates a deeper apathy among small businesses towards a whole range of issues.

Earlier this year the New South Wales state government abolished the popular Small Business September program with barely a squeak from the SME sector, with some small business groups actually welcoming what was a dramatic cut to support programs.

Compare this to the Olympic athletes, not only do we see the AOC coming out swinging with demands for more funding but the yachting team are staging an effective campaign to reinstate NSW government programs to support their sport: The total opposite to the small business community.

Small business, on the other hand, rolls over and accepts cuts to programs, poorly thought out regulations and government procurement policies that favour multinationals over local companies which are capable of the job.

When small business is given a chance to have a voice, the community blows it with whingeing. At the NSW Small Business Commissioner’s roadshows earlier this year it was notable how much time was spent whingeing about group buying services, traffic clearways and council permits for coffee tables rather than sensible and achievable wins for the SME sector.

So it wasn’t a surprise that the result of that roadshow was the cutting of useful programs and little effective change.

The best example of this whingeing rather than action is the current campaign to increase the GST threshold and abolish penalty rates.

Instead of focusing on the real problems facing businesses such as high rents, profit gouging from distributors and poorly thought out state and federal regulations imposed by both sides of politics – the small business and retail sectors manage to demonise their staff and customers and increase the suspicions of consumers and workers that they’re being ripped off by big, bad employers.

In reality, the shopkeepers and other small businesses are struggling to adapt to a rapidly changing economy. They are feeling those changes earlier than the rest of the economy because they don’t have the cushions of fat margins, political connections or guaranteed incomes of the corporate, public or political sectors.

Those struggles will give the small business sector an advantage over the bigger and slower groups – having adapted to the changed economy, those smaller businesses will be stronger and fitter than their bigger competitors.

Chris Ridd, of cloud computing accounting service Xero, one of MYOB’s biggest competitors, puts this best.

“Technology is an enabler and can actually help small businesses gain efficiencies, reach new customers and generate new revenue streams. Why turn your back on the one thing that can turn your business around.”

It’s the proactive business people adopting new technologies who are going to thrive over the next decade. Whingeing about TripAdvisor, the GST or dumb government policies isn’t going to save an enterprise that’s become irrelevant.

So make sure your website’s up to date, check what customers are saying about you on social media or review sites and have a look at those cloud computing services that can improve your business’ profitability and efficiency.

The time to do it is now, before your business becomes irrelevant.

Chasing away the astroturfers

Recent court and industry regulator rulings are good news for honest businesses using social media.

Yesterday we heard the collective gnashing of teeth as social media experts, lawyers and business owners complained about the Australian Advertising Standards Board’s ruling that companies are responsible for comments on their Facebook pages.

The ASB ruling (PDF file) was a response to complaints that comments on Diageo’s Smirnoff Vodka page breached various industry codes of conducts and encouraged under age drinking.

While the board found the complaints weren’t justified – something that most of the hysterical commentators overlooked – the ruling contained one paragraph that upset the social media experts and delighted the lawyers.

The Board considered that the Facebook site of an advertiser is a marketing communication tool over which the advertiser has a reasonable degree of control and could be considered to draw the attention of a segment of the public to a product in a manner calculated to promote or oppose directly or indirectly that product. The Board determined that the provisions of the Code apply to an advertiser’s Facebook page. As a Facebook page can be used to engage with customers, the Board further considered that the Code applies to the content generated by the advertisers as well as material or comments posted by users or friends.

The key phrase in that paragraph is “over which the advertiser has a reasonable degree of control”. Obviously someone posting on Twitter, their blog or someone else’s website is beyond the control of the advertiser.

With Facebook comments, the onus is on businesses to make sure there is nothing illegal appearing on their streams and any misconceptions or false statements are answered.

In many ways, this is common sense. Do you, as a manager or business owner, want your brands tarnished by idiots posting offensive or illegal content? Sensible businesses have already been dealing with this by deleting the really obnoxious stuff and politely replying to the more outrageous claims by Facebook friends.

What’s more important with both the ASB ruling and the Allergy Pathways case the ruling relies upon make it clear that ‘astroturfing’ on social media sites won’t be tolerated.

Astroturfing is the PR practice of creating fake groups that appear to support a cause or product. A group paid for by an interested party appears to grow naturally out of community interest or concern – a fake grassroots group so to speak and hence the word ‘Astroturf’ which is a brand of artificial grass.

Organisations like property developers and mining companies have been setting up Facebook pages and websites that appear to be community groups supporting their projects and many smaller business have been inducing friends, relatives or contractors to post false testimonials. In the run up to major elections in 2012 and 13 we’re seeing many of these fake groups setup to push various political agendas.

For a few consulting groups, astroturfing has become a nice line of business and those of us on the fringe of the social media community have been watching the development of ‘online advocacy services’ with interest.

While no-one has claimed Allergy Pathways or Diageo were posting fake testimonials on their own Facebook pages, the rulings in both cases are a warning that the courts and regulators are prepared to deal with those getting clever with social media.

For honest businesses this ruling is a non-issue, it’s timely reminder though that web and social media site are not ‘set and forget’ but need to be regularly checked, valid customer comments replied to and inappropriate content removed.

The ASB ruling reaffirms what sensible social media experts have been advising all along, and that’s good news for them and their clients.

Verified Jerks

Anonymity is the problem on the Internet, accountability is.

When you work in customer service you quickly learn that some people are just rude jerks. Depending on how bad a day you have it could be 2, 5 or 10% of the population.

For these people the Internet has been a paradise with almost anonymous forums and newsgroups allowing them to be rude and obnoxious with little risk of being held accountable for their spiteful behaviour.

One of the hopes of social media services was that forcing people into using accounts tied to their real identities would impose some self discipline among these trolls and haters,

Sadly The argument that verified identities would stop people being irresponsible is wrong.

The sad story of seemingly mature people insulting and wanting to beat up a five year old participant on a reality TV show illustrates how manners, good taste and style are beyond some people.

It’s depressing, but unsurprising that this demographic can’t figure out that ‘reality’ TV shows are anything but real. The programs are carefully edited to suit the dramatic narrative of the producers with some of the participants being portrayed as villains and others as heroes.

The little girl in question could be in a spoilt little brat, but you’d want to be careful making that judgement from what you see on TV.

Many would put the spiteful behaviour of the Facebook commentors down to being another example of social media destroying our society, but this behaviour pre-dates the web.

In the 1990s we saw a similar wave of insults aimed at President Clinton’s then teenage daughter Chelsea. In many ways it was far worse in what we are seeing today in that those encouraging that behavior were the leaders of political parties and their ideological fellow travellers in the media.

The abuse of Chelsea Clinton marked the rapid decline of standards in politics that leaves many of us now sickened by the behaviour of all parties – and that of the media that treats their shenanigans seriously.

Notable about the raucous political partisanship is that most participant are happy, even proud, to be named as they debase the institutions they’ve been elected to represent.

The reason is they aren’t accountable, they know most of us are rusted on voters and the few that aren’t can be conned long enough by expensive advertising campaigns to get them elected.

Should they not get elected, they’ll be welcomed into the arms of their corporatist friends who will find them a nice sinecure on a board, committee or think tank.

The real reason people act like jerks is because they think they aren’t accountable – the politicians know they aren’t and most Facebook users figure the odds are in their favour that they’ll never be held to account for their boorish behaviour.

Anonymity is the reason for bad manners on the net, accountability is. While our society doesn’t make people accountable for cruel, rude or corrupt behaviour then these people will thrive. With or without the internet.

Australia – the Noah’s Ark of business

Cosy duopolies leave the Australian business community exposed to a changing world.

During a week of big business news, the buyout of another boutique brewery by a big corporation was barely noticed, but Lion Nathan’s takeover of the Little Creatures brewery illustrates the duopoly problem that is crippling Australian business.

A few days after that deal was announced, rumours that Business Spectator – which the above link takes you to – would be taken over by News Limited started circulating. These turned out to be true.

In both cases, existing duopoly players bought out small competitors, a process that’s been going on since Australia decided industry duopolies were necessary to protect the nation’s managerial classes, and these takeovers kill genuine innovation and stymie new thinking.

For those duopolies the definition of success is grabbing a few percent of market share off each other while using their market powers to screw down supplier costs.

A good of example of this is the retail duopoly, the farmers and producers get screwed while the supermarket chains engage in price wars driven by truly awful advertising campaigns.

Un-imaginative, un-original and plain un-inspiring. Any smart young kid wanting to get ahead in the retail industries knows they have to look overseas for job opportunities or inspiration.

Therein lies the real problem with Australia’s duopoly business culture – it triggers a brain drain as comfortable managements block any innovative new thinking as being too hard or just unnecessary.

In the media duopoly, telecoms analyst Paul Budde illustrated the problem in his account on trying to convince Fairfax of where the media industry was heading in a connected economy.

Fairfax’s management didn’t get it and didn’t care – today they still don’t get but they care deeply as their business model crumbles.

It’s not just future managers that are looking overseas for opportunity, the customers are well.

The duopoly model that evolved in Australia over the last thirty years depended upon the tyranny of distance to act as an effective trade wall. The Internet has demolished that wall for most industries.

Almost every Australian duopoly is living on borrowed time. If, like the proprietors of Business Spectator or Little Creatures, your business plan relies on selling out to a local duopolist then you’d better move quick.

Looking at the wrong curve

Times have changed, have we?

“We don’t understand it, there’s a property shortage but prices are going down,” bleats the property expert in a recent interview.

Property booms are always excused with claims of “shortages”. The US, Ireland and the UK in recent years property markets all collapsed despite business and political leaders claiming there was a “property shortage”.

The shortage meme happens because the property spruikers, economists and finance writers focus on the wrong curve – they look at the supply curve and assume prices are going up because there isn’t enough property to go around.

What drives speculative booms is easy credit – demand driven by access to money drives speculation, not supply shortages.

Australia’s long term property boom which started in the late 1960s and went onto steroids in the late 1990s has been driven by access to credit. Banks were prepared to lend to property buyers, who were increasingly speculators, and government policies favoured those speculating on property over investing or building businesses.

The crisis of 2008 was the end of the easy credit era and the Australian property speculation boom is over. For the policy makers, politicians and economists the basis of the 1980s corporatist ideology is crumbling around them.

No ideologue lets go of their beliefs easily – that’s why Western governments who bought into the corporatist worldview are pumping trillions of dollars into supporting zombie banks and releasing constant stimulus packages to prop up the property market.

Like the communists of the 1970s, today’s corporatists are looking at choosing the statistics that suit their ideological views.

To support their beliefs they look at the wrong curve and then wonder why the world isn’t working as they thought it would.

Times have changed. Have you?